The playbook for post-merger profit begins with streamlined operations: rationalization. The investment plan will merge the target company and merge multiple technology platforms into one. This consolidation aims to unlock greater value through rationalization. Artificial Intelligence evolves deal valuation in redefining post-merger technology rationalization and integration.
Picture the scene: a merger is announced and the boardroom erupts in champagne toasts and victory speeches around the over-sized ebony table. Executives beam as they ponder profits to come and investors start to count their returns. All the egos involved claim synergy as alchemy.
After initial press releases to realize total shareholder returns, merger efforts often stall to realize potential. New company come to realize increasing delays, rising expenses, escalating write offs, and downsizing lays offs.
The foundation to build and run business applications is a technology or digital platform. Critical to synergy in dusty, operating playbooks is to integrate technology platforms through technology rationalization. And, for many, the step that follows platform rationalization is people rationalization, see: layoffs.
In many company mergers, investment payoff will happen when platforms merge data for a seamless flow. The vision is for departments in the new company to effortlessly collaborate across platforms for productivity gains and identify redundancy costs, again, see: layoffs.
Rationalization usually means integration of platforms or systems like:
- HR systems,
- Financial platforms,
- Enterprise resource planning,
- Customer relationship management,
- Operating systems, and
- other databases
Rationalization is Artificially Intelligent
It sounds great in theory: merge the systems, streamline operations, and magic will happen. Seamless data flow, perfect collaboration, synergies raining down like dollar bills. And that is also the promise sold to shareholders.
But let’s be honest—that’s the theory.
In reality?
Platform projects in a post-merger environment become bloated monsters of delay, failure, and cost overruns. As projects delay and costs rise, CFOs break out into in a cold sweat and run to the CTO, who demands answers from the CIO who stammers cluelessly to the CEO, who now has to spin a picture of delayed realization. The leadership and fund managers will lament synergy challenges to defend rapidly dissolving funds and negative profits.
The approach is played out too often. Yet people continue to follow that script, despite the heavy cost of delay.
Platform integration remains the go-to profit solution. More often than not, it’s the business equivalent of a square peg in a round hole. Synergies do not materialize until long after financial hemorrhage started.
AI, Big Data, Cloud, and IoT—Revolution, then Evolution
Artificial Intelligence (AI), Big Data, Cloud Computing, and Internet of Things (IoT) revolutionize valuation and investments. Disruption demands new ways of thinking and new ways of working to embrace technology.
Today.
Now.
Digital transformation is about disruption, the four technologies, at a high level, include:
- Artificial Intelligence enables machines to mimic human decision-making to learn from vast amounts of data. In the business world, AI automates complex tasks, uncovers hidden patterns, and delivers real-time insights, to help make smarter, faster decisions.
- Big Data refers to the massive volumes of structured and unstructured information that businesses generate daily. When terabytes of daily generated data is harnessed, Big Data lets companies analyze trends, predict customer behavior, and drive operational efficiencies previously unthinkable.
- Cloud Computing provides on-demand access to shared Information Technology resources over the internet that eliminates the need for expensive, in-house hardware. Cloud Computing enables businesses to scale operations quickly, reduce costs, and innovate without being chained to traditional infrastructure limitations.
- Internet of Things connects everyday devices wirelessly to communicate and share data in milliseconds. A network of smart products and systems now monitor, adjust, and optimize themselves and industries like manufacturing, healthcare, and logistics through real-time and predictive operational insights.
Traditionalists are busy spending millions on IT consultants and integration teams. Forward-thinking companies ask: Why bother with full-scale integration to unlock the same synergies using AI, big data, cloud computing, and IoT?
Since 2000, 52 percent of the Fortune 500 companies have either been acquired, merged, or have declared bankruptcy. Source: Digital Transformation: Survive and Thrive in an Era of Mass Extinction
Define, Predict, Prescribe
I appreciate skeptic in the room, let’s turn to a couple ways the stock market reacts to merger announcements:
- When an acquisition is announced, it’s common for the acquiring company’s stock price to drop in the short term, primarily because the acquirer often pays a premium for the target, depleting cash reserves or incurring debt. Investors also worry about integration risks and overvaluation. Conversely, the target company’s stock price typically rises as shareholders expect a premium for their shares. Investopedia
- In terms of recovery, the acquiring company’s stock price can take two to three years to recover and excel, assuming successful integration and synergy realization. Nasdaq
But here is the kicker: despite all this spending, even the powerful McKinsey states, in Common Pitfalls in Transformations, their studies that: 70 percent of system integration projects fail. That’s right—you could shell out millions, waste years in limbo, and still end up with systems that do not deliver cost synergies promised to shareholders.
If that is not insanity, I do not know what is.
Multi-million-dollar Burn
To integrate platforms, you need licenses, infrastructure, consulting teams, and let’s not forget the change management circus. It sounds simple, but anyone who’s been through it knows it’s more like trying to renovate a house by tearing it down to the foundation with hope the roof remains up.
Let’s talk about the cost of these “integration marathons” for a moment. A medium-sized company can easily drop $10 to $50 million trying to merge its systems and platforms.
A large company? The price tag hits $100 million or more before objective, metrics-driven delivery is realized. Now add consultant costs charged by the day (and oh, they love those billable hours), and you are pushing chips into a $50 to $150 million gamble.
Traditional systems integration? A bottomless money pit.
Digital transformation technologies revolutionize post-merger integration. AI and complimentary technologies of Cloud Computing, IoT, and their Big Data integrate solutions fast, efficient, and for a fraction of the massive integration project(s) costs.
Instead of tearing down the old systems and trying to force onto one, companies that use AI and Big Data to analyze and indentify data correlations across existing platforms win big.
The cloud allows scalable, flexible solutions without the infrastructure headaches.
And IoT? It’s turning day-to-day operations into a treasure trove of real-time data, that feed insights directly into new decision-making and predictive processes.
Actual or Artificial Intelligence
You might wonder, “Is this too good to be true?”
Not at all.
These tools and the data science and machine learning involved already deliver massive gains in other industries for other applications. Not enough investment banking, private equity, and big companies understand or embrace new ways to work.
Afraid?
Stuck in their ways?
Too rich to care?
Does no one question the need to change?
Who continues to invest and support these firms that insist the sun is the center of the universe?
To truly leverage the technology requires a people with a data science lens to make current post-merger integration strategies look like dial-up internet access and AOL online disks in your mailbox.
Seems too much focus is to raise funds for the next investment deal to fast-track synergies, however, stuck in a dial-up-modem-mindset.
There is more to this story. As traditional integration projects burn through budgets, the smartest companies make hidden investments that accelerate growth in people and process. Fancy tools are bricks to build with, but people and process are the mortar to build upon. In the same vein, reallocate resources and invest in talent pays off far faster than any system integration ever can, for far less cost.
In short, Artificial Intelligence, supporting technology, and thinking in post-merger integration will define how deal value as well as the way how to rationalize technology for post-merger success.
Teaser for Blog 3: The Hidden Investment That Smart Companies Are Making
In Part 3 [link pending] of this series, I identify the use of Artificial Intelligence, data science, and other digital transformation thinking will unlock profit, reduce costs, and boost ROI — without the baggage of traditional system integration.
But first, I explore AI and data science in Part 2 for a smarter, faster way to reduce post-merger friction people have with technology and platform integration.